Blockchain-based platform for letters of credit goes live


Solomon Teague
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Eight banks have gone live with the Voltron initiative, an open platform for documentary trade.


Voltron provides a single point of contact to connect corporates with their banks and trading partners, on a distributed ledger, for issuing letters of credit (LCs) and exchanging documents, to make transacting with LCs more efficient.

Where LCs require a complex global paper-chase, distributed ledger technology (DLT) involves a single, transparent, end-to-end trade, executed quickly and seamlessly between buyer, seller and their respective banking partners, say Voltron’s backers.

Being conducted on a single, shared application, rather than multiple systems, it delivers a substantial reduction in the time it takes to execute the trade, from up to 10 days, down to 24 hours.

Voltron has been backed by Bangkok Bank, BNP Paribas, CTBC Holding, HSBC, ING, NatWest, SEB and Standard Chartered.

Banks are very eager to use this technology 
 - Vivian Chan, CryptoBLK

It has been developed and operated by CryptoBLK, a Hong Kong-based technology company, and is hosted on the cloud and based on R3’s Corda platform, making it easy to update and upgrade in response to user feedback.

Voltron’s viability was proved by a pilot transaction with Cargill in May. An LC was issued using Corda by HSBC to ING, with both banks representing separate Cargill arms.

The banks said the transaction went without any surprises or problems, and “demonstrated that blockchain is commercially and operationally viable as a solution to trade digitization”.

However, the trade does not provide a blueprint that will be applicable in all situations. Most trades do not involve the same institution on both sides of it, and different banks structure their LC businesses differently.

Deals that involve more banks will bring additional complexity, and CryptoBLK is still working on how Voltron can handle such variables, and how to make Voltron scalable generally.

Addressing security concerns

Vivian Chan, chief commercial officer at CryptoBLK, says most of the security concerns raised by Voltron’s prospective users have tended to be about the hosting environment, rather than the fact it is based on DLT. 


Vivian Chan,

“Essentially it is the same concern people have when they store data on Google Drive or Dropbox – clearly data stored on the cloud can be hacked,” she says. “CryptoBLK has taken extra steps to strengthen security of data held on Voltron’s cloud.”

It has data-at-rest encryption and firewalls to protect data. The Corda node and the web portal are always hosted on different machines, and even different geographical zones, to further protect the system from unauthorized access and mitigate damages that may incur during malicious attacks.

CryptoBLK also supports hybrid deployment: namely different Corda nodes can be deployed on public cloud and on-premises within financial institutions’ data centres simultaneously, adds Chan.

There will be more frequent Voltron pilots during the coming months as it moves into the production phase. Chan expects a more regular stream of deals on Voltron by the end of 2019.

“Banks are very eager to use this technology,” she says.

It also needs to be further stress-tested to ensure it has sufficiently rigorous disaster-recovery processes if something goes wrong. For example, there will be instances of human error – information typed incorrectly.

Updating regulations

Coming months will see many more conversations with regulators, whose rules were written for trade conducted in different circumstances.

Some regulators require banks to hold trade finance records for set periods of time and in specific ways, which could be redundant if trade information is held on the blockchain.

This is one advantage of Corda, which allows data to be segregated and does not replicate data across the entire network when documents are sent from one blockchain node to another. This allows institutions to comply with these kinds of requirements and means institutions only see the data that is relevant for them.

If regulations require information that is held on the blockchain to be held locally too, banks are benefiting less from using the blockchain in the first place.

Industry will likely go through a period when banks have to continue complying with old rules, storing information locally as well as on the blockchain, until the tech has proved itself and rules are changed.

Blockchain is a useful way for data to be exchanged between parties that do not necessarily trust each other 
 - Marc Delbaere, Swift

It is not yet clear whether regulators can lead the tech – hosting working groups and setting up guidelines within which the technology can evolve – or, as is more likely, they will follow.

There are obvious advantages to regulators being engaged at an early stage, but it cuts the other way as well. If regulators stay out of it, technology companies are freer to experiment to see what will work, and in the meantime complying with the old rules provides a safety net that can always be removed at a later date.

Voltron is being designed with interoperability in mind, so that banks and corporates can plug into the system with their existing trade finance platforms. It is highly modularized, so the enormous number of stakeholders in the trade finance process can engage with the blockchain in their own time, without holding up those that want to engage more quickly.

Ultimately, the more parties to the process that are plugged into the blockchain, the more complete the data – but the benefits to using the system should be clearer as more institutions join, meaning momentum can build.

Banks, corporates and ultimately logistics companies, customs officials and others should be able to continue as they have before, but instead of data being logged on their own proprietary systems, it will be logged on the blockchain.

Chan says: “The operational benefits of the blockchain increase in line with the number of users on the network. It will deliver quicker transactions and ensure everyone has access to the most up-to-date data.

“It will mean less people will be needed to spend time circulating and checking documents, reducing operational costs. And that in turn should mean trade finance is cheaper for end-users.”

Simplifying trade finance

Banks use four or five systems for their trade finance business, so dealing with multiple systems should not be a problem in the short term.

However, the hope is that as banks digitize their trade finance businesses, they can use initiatives such as Voltron as an opportunity to standardize their processes, which will itself make trade simpler and quicker.

There are some sceptics that suggest DLT has failed to live up to the hype, so there will be considerable interest in Voltron in the coming months, to see whether it can deliver the benefits DLT enthusiasts claim.

Trade finance has often been seen as a particularly good use case for DLT.

Marc Delbaere, global head of corporates and supply chain at Swift, says: “Blockchain is a useful way for data to be exchanged between parties that do not necessarily trust each other.

“It allows the data to be enriched as it moves along the chain, as trade data does when it receives a seal from the port and a certificate from customs, for example.”

That said, Swift has been transferring digital data between banks for years without using DLT and in recent years has extended this service to the biggest corporates, so they can talk to banks in the same way banks talk to each other.

Delbaere believes there is no reason this could not be extended further, to all parties involved in trade finance, for example, even if it uses a different system.